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ESG performance and firms’ business and geographical diversification: An empirical approach

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  • Barros, Victor
  • Verga Matos, Pedro
  • Miranda Sarmento, Joaquim
  • Rino Vieira, Pedro

Abstract

Diversification is primarily associated with improved performance, although the increasing complexity of conglomerates may offset these benefits. ESG scores and their dimensions serve as performance indicators and may also be risk components influencing cash flows. This study aims to investigate the relationship between ESG performance and firms’ diversification. We hand-collected data on business segments and geographical diversification from the constituents of the Euro Stoxx 50 over a large period, from 2002 to 2020. Our findings indicate that geographical diversification does not influence ESG variability. However, better ESG scores are observed in firms with more business segments, that do not have a dominant business segment with a significant role in the firm nor are concentrated in the most representative business segments. However, better ESG scores are also associated with greater asymmetry in the contribution of each business segment to the entire group. Collectively, we shed light on the importance of business diversification in improving sustainability performance across ESG dimensions.

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  • Barros, Victor & Verga Matos, Pedro & Miranda Sarmento, Joaquim & Rino Vieira, Pedro, 2024. "ESG performance and firms’ business and geographical diversification: An empirical approach," Journal of Business Research, Elsevier, vol. 172(C).
    • Handle: RePEc:eee:jbrese:v:172:y:2024:i:c:s0148296323007518
    DOI: 10.1016/j.jbusres.2023.114392
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    More about this item

    Keywords

    Diversification; ESG; sustainability; Herfindahl–Hirschman index; Entropy index;
    All these keywords.

    JEL classification:

    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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